For those who know and have read the Boomer thread, you know I consider this something we probably cannot save ourselves from because I consider it to be the Baby Boomer Blind Spot. I'm of a firm belief the Boomers in shucking all the other rules and gutting all the other wealth available are under this one last and strongest delusion, that the dollar cannot be broken as a currency.

In my view, all the tone that underlines all the fretting about sovereign debt crisis and currency wars belies this fact. The rest of the world really cannot believe the United States would do this to it's own currency and harm itself to this degree. As the article notes, it amounts to economic suicide. Fiat currencies aren't backed by anything but rule of law and a belief that people will follow through on actions to maintain the wealth represented in the currency. QE represents a profound breaking of that promise to a degree where the loss of trust is permanent and largely irreversible.

Printing money represents nothing more than default on debt and since we are the world's largest debtor, being unwilling to honor promises here has a profound outcome.

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Quantitative easing is nothing more than a euphemism for printing money out of thin air. Its one-and-only purpose is to destroy the currency being printed. It is pure dilution and absolutely no different than a corporation vowing to improve its fiscal performance simply by printing a lot of new shares.

We can illustrate the inherently evil nature of this monetary abomination by working through the "mechanics" of this policy. First, the explicit goal of QE2 is to increase inflation. By now, all readers should be familiar enough about "inflation" to know that it is literally nothing more than the speed with which our currencies are being destroyed.

In the case of the Federal Reserve, we understand all too well how "successful" it has been in creating inflation. Since it was invented in 1913, the Federal Reserve has been directly responsible for the U.S. dollar losing 97% of its value (i.e. inflation has raised prices by more than 20 times what they were in 1913) -- despite the official mandate of the Federal Reserve for "price stability" (i.e. protecting the dollar). Now, Ben Bernanke is vowing to "succeed" in destroying the remaining 3% of value of the world's reserve currency.

Amazing when you think about it.

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Visit Shadowstats.com, operated by respected U.S. economist John Williams, and you will hear that U.S. inflation has been in the range of 8.5% - 9.5% all this year. Williams performs his calculations using the exact same methodology used by the U.S. government a generation ago, before the U.S. government intentionally incorporated various statistical lies into this measurement.

Understand the enormous "rewards" which a government receives for lying, by grossly under-stating the rate of inflation. Payouts on $100's of billions of U.S. government benefits per year are indexed to the rate of "official" inflation. By grossly understating inflation (and cheating all of the recipients of those benefits), the U.S. government can get an instant, multibillion dollar windfall from that one lie, alone (every year).

I'm firmly of the opinion that inflation will return and that the generation after them will somehow decouple entitlements from it. This will solve the entitlement problem in part by cutting benefits without really cutting them. You let inflation run 6-7% while actually raising benefits 1-2% and the government will just lie about the numbers. (Hell they already do)

Look what he wrote next and think about it especially if you are a boomer....

I believe we will end up endorsing a universal health care program but I believe the reasoning on this will be a bit perverse. It will be because as the boomers begin desiring all their life extending and quality of life procedures, we will be able to ration care and deny them these items. You will see hip, knee replacements and other procedures limited by the government due to preexisting conditions much like what is happening in Britain now.

I think America lucky in that our illegal immigrants don't happen to want to kill us unlike Europe. We don't have to worry about Mexicans being radicalized religiously. I think we will soon see an amnesty program in part because of the "retirement crisis.

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Secondly, every quarterly and annual GDP report must be "deflated" by the real rate of inflation. The raw data must be stripped of all inflation, in order to accurately represent real, economic growth. By grossly understating the rate of inflation, the government falsely inflates the rate of GDP "growth" by several percentage points -- et voila we have a "U.S. economic recovery."

It's the recovery that never happened because the growth wasn't real. This is why there is no hiring.

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Obviously, quantitative easing is not, does not, and cannot "fix" any of the U.S. economy's problems, which (ironically) have all been caused by too much new debt, and new money-printing. So why is the Fed "coming out of the closet" (even just temporarily)?

Simply, with the intensifying weakness of the U.S. economy, the Federal Reserve (and the U.S. government) feel an intense need to be seen to be "doing something" (even something it was already doing) -- and neither the U.S. government nor the Fed have any other ideas.

There aren't any other ideas left without just fessing up and taking the lower standard of living, especially for those Baby Boomers who have literally wasted away a lifetime of earnings.

Who gets elected by declaring you need a lower standard of living and must desire to save, invest and work hard again? Again there is a small chance here that perhaps we can head in the right direction but control of the House alone won't cut it. Hell even half the Republican party still is far too liberal and desires to spend and control far too much. The middle of the political spectrum right now basically amounts to, let us play casino to make fake returns instead of real returns and we won't complain when you take a larger piece of the pie with regard to the fake money and returns.

Yeah, this whole move is really quite risky and scary. The only reason more people aren't up in arms about it is because they don't comprehend what the Fed is doing here and what it's impact will be. Some of this is due to the media (equally ignorant) dressing up this action in nice and technical sounding phrases like "quantitative easing".

The plan to pump $600 billion into the financial system is designed to stimulate the economy in large part by lowering mortgage and other interest rates.

At this point we should stop and note two really important things. One more obvious than the other:

The first is that it is exactly this type of action (lower interest rates on loans, particularly mortgages) that was a key contributing factor to the housing bubble that just recently burst. Maybe you all heard about that in the news.

The second is far, far more frightening. That $600B? Take that number and multiply it by about 10. What do you get? That's right! $6 trillion! That's trillion with a 't'. What's so important about that number? Well, that's the potential increase in the money supply represented by this action.

Now you might say, well, heck, the Fed has already spent about $1.7T in open market operations so far during this "recession" and that hasn't really increased the money supply appreciably and hasn't really created any runaway inflation of prices. In fact price inflation has been fairly modest. Why worry?

Well there's a reason why this hasn't happened...yet. Banks are not lending money against their excess reserves (which is where this newly created $1.7T has gone). And, of course, people aren't borrowing (for lots of reasons.) You need lending and borrowing to unleash a real expansion in the money supply.

And that's exactly what QE2 (quantitative easing part 2) is intended to do. It's intended to lower interest rates and pump more money into the economy and to make borrowing cheap again and get that money flowing. Let's watch:

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They were also concerned that inflation has been running too lowand were looking for a way to encourage modest price increases, which would give consumers and businesses more reason to spend money before its value declined and help energize the economy.

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The Fed plans to create money, essentially out of thin air, and then pump it into the economy by buying Treasury bonds on the open market.

It's important to note that this is an uncharacteristically candid statement from the mainstream media. It's also important to note that this is exactly what the Fed always does...create money out of thin air. This is of course what inflation is. It's of course what causes prices to up (in reality the value of the dollar to decline.)

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The Fed action, which is aimed in part at making it cheaper for Americans to take out mortgages and for businesses to borrow money to expand, influenced the market even before the steps were formally unveiled. Average mortgage rates had already fallen from 4.5 percent for a 30-year fixed-rate loan over the summer, when Fed officials first said they were considering new steps, to 4.2 percent last week.

The stock market, meanwhile, moved higher and the value of the dollar declined over the past two months in anticipation of the central bank's action.

Another note here is to realize that the stock market increases here are already reflecting the less valuable dollar. In other words the Dow isn't really at 11,000 in terms of some constant value commodity.

But the master of obfuscation and near Orwellian double-speak makes us all feel better about it:

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"This approach eased financial conditions in the past and, so far, looks to be effective again," Fed Chairman Ben S. Bernanke wrote in a Washington Post opinion article published Thursday. "Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. . . . Increased spending will lead to higher incomes and profits that, in a virtuous circle, will support economic expansion."

But where were we? Oh yes...bubbles...currency debasement:

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Nor is inflation the only risk that the Fed's initiative entails. It could cause new bubbles in the stock market or housing prices, if asset prices rise beyond what's justified by their fundamentals. Also, the value of the dollar could decline rapidly.

Well, this should be "fun." And, of course, by "fun" I mean absolutely terrible. But, hell, it's only people's lives, savings and lifestyles they're fucking with here.

Let me first of all say that I agree this is a fancy term for printing money. I found it nearly New Speak-like when I first heard of it 6 months to a year ago (can't recall exactly when).

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...Its one-and-only purpose is to destroy the currency being printed. It is pure dilution and absolutely no different than a corporation vowing to improve its fiscal performance simply by printing a lot of new shares.

We can illustrate the inherently evil nature of this monetary abomination by working through the "mechanics" of this policy. First, the explicit goal of QE2 is to increase inflation. By now, all readers should be familiar enough about "inflation" to know that it is literally nothing more than the speed with which our currencies are being destroyed.

I don't entirely agree. The primary and explicit purpose is to inject money into the system, and to ease credit conditions---both with the larger goal of expanding economic growth. However, the secondary goal , I think, is to create inflation in prices through currency devaluation in order to deal with debt.

It's interesting...with the loose monetary policy we've had for 10 years, we're still not seeing significant inflation with the exception of the housing market from 1999-2005 or 2006. The dollar has plummeted in this time, interest rates remain at near-zero for overnight loans, and we've been injecting liquidity into the system at an alarming rate. My question is...where is the inflation? I'm very concerned about an "inflation super spike" of sorts. But one does have to wonder why we're really not seeing inflation at this point with the trillions we've injected over the past 10 years in one form or another. Perhaps the saving grace has been the housing bubble bursting, causing the economic meltdown--particularly the meltdown in consumer spending. Oddly enough, the inflation problem may have corrected itself.

We'll see. I know the rest of the world hates us even more for this move. From a strictly emotional standpoint, I'm starting to feel like we live in the last 100 years of the Roman Empire.

I can only please one person per day. Today is not your day. Tomorrow doesn't look good either.

I don't entirely agree. The primary and explicit purpose is to inject money into the system, and to ease credit conditions---both with the larger goal of expanding economic growth. However, the secondary goal , I think, is to create inflation in prices through currency devaluation in order to deal with debt.

I think you're a little confused here. You're not being precise in what your saying (and possibly what you're thinking.) I'm not saying this to be rude. The act of "injecting money into the system" and "easing credit conditions" is creating money. It is inflation. It's as simple as that. The mechanisms might be shrouded in technical language and obfuscated by arcane financial magic, but this is inflation. The devaluation of the currency and the rising prices are simply the natural effects of this act of inflation. These things are intimately connected. They are effectively two sides of the same coin.

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Originally Posted by SDW2001

It's interesting...with the loose monetary policy we've had for 10 years, we're still not seeing significant inflation with the exception of the housing market from 1999-2005 or 2006. The dollar has plummeted in this time, interest rates remain at near-zero for overnight loans, and we've been injecting liquidity into the system at an alarming rate. My question is...where is the inflation? I'm very concerned about an "inflation super spike" of sorts. But one does have to wonder why we're really not seeing inflation at this point with the trillions we've injected over the past 10 years in one form or another. Perhaps the saving grace has been the housing bubble bursting, causing the economic meltdown--particularly the meltdown in consumer spending. Oddly enough, the inflation problem may have corrected itself.

Well, there might be multiple explanations. But first we did see massive price inflation during that period in both the stock market and the housing market. Right now things are apparently more muted (though I wouldn't trust the CPI). But we are seeing inflation in various places like food prices. Is it off the charts? No, not yet. But there are other factors that can keep the price effects of inflation at bay. First productivity improvements would be a major factor. Secondly, the really massive monetary expansion of the past 2-3 years is being held at bay by the lack of lending and the debt pay down that's been happening and the collapse in both housing and stock prices.

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Originally Posted by SDW2001

From a strictly emotional standpoint, I'm starting to feel like we live in the last 100 years of the Roman Empire.

I'm starting to feel like we live in the last 100 years of the Roman Empire.

Recall the good old days when I told you several times that America was heading the way of the late Roman Empire. Complete refusal of any of you wingers here to acknowledge that, because your man was in charge, printing the money....

Still, let me tell you now, I think its alot less than the last 100 years....beginning to think the Mayan calendar was right. Maybe they recorded a message from a time traveller sent from the future!!

Recall the good old days when I told you several times that America was heading the way of the late Roman Empire. Complete refusal of any of you wingers here to acknowledge that, because your man was in charge, printing the money....

Evangelical Christians have been pointing out the similarities between our society and the end of the Roman Empire for more than 30 years.

Evangelical Christians have been pointing out the similarities between our society and the end of the Roman Empire for more than 30 years.

those devils preempted my message and tried to deceive you all by proclaiming it first.

Still, what we all going to do when the money becomes worthless and we discover gold has no intrinsic value?

I think that the is no real inflation yet because the banks are hoarding the money, when they eventually release it, inflation is going to wipe away the debt and the currency, then interest rates are going to shortly thereafter hit the roof, thus anyone who *still* has a mortgage on their home is going to lose it. Then comes the Amero.

I think the bailouts were a warning to everyone to get their shit together and just buy some time for the depression we are about to experience hits real bad.

Recall the good old days when I told you several times that America was heading the way of the late Roman Empire. Complete refusal of any of you wingers here to acknowledge that, because your man was in charge, printing the money....

Still, let me tell you now, I think its alot less than the last 100 years....beginning to think the Mayan calendar was right. Maybe they recorded a message from a time traveller sent from the future!!

I'd keep a close look on the heavens if I were you....

You make it sound like this is a problem only with the United States when it is affecting every Western Democracy. Demographic and debt time bombs are the defacto standard in all of Europe, Japan and China has at least half the equation with regard to demographics but doesn't with debt unless all the wonderful bonds they are holding become worthless too.

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Originally Posted by marcUK

those devils preempted my message and tried to deceive you all by proclaiming it first.

Still, what we all going to do when the money becomes worthless and we discover gold has no intrinsic value?

Gold does have an intrinsic value. It is a metal and it is relatively rare and precious. Sure you can't eat it but you can't eat coal or oil either. However you could certain barter it for other items of value.

I will admit this game of chicken with the printing press has been rather interesting to watch. If the U.S. turns China into Japan then it is all over.

You make it sound like this is a problem only with the United States when it is affecting every Western Democracy. Demographic and debt time bombs are the defacto standard in all of Europe, Japan and China has at least half the equation with regard to demographics but doesn't with debt unless all the wonderful bonds they are holding become worthless too.

Gold does have an intrinsic value. It is a metal and it is relatively rare and precious. Sure you can't eat it but you can't eat coal or oil either. However you could certain barter it for other items of value.

I will admit this game of chicken with the printing press has been rather interesting to watch. If the U.S. turns China into Japan then it is all over.

There is a nice little place in Norway called Sunndalsora which I checked out recently, I am off there as soon as the *serious* shit starts to hit the fan. In the meantime, I am getting as many qualifications as I can. If I can get a degree before it goes titsup I'll be off to New Zealand.

Like you say though, all the West is in up to their eyeballs, and it could go pop at anytime. What do you mean re: us turning China into Japan?

There is a nice little place in Norway called Sunndalsora which I checked out recently, I am off there as soon as the *serious* shit starts to hit the fan. In the meantime, I am getting as many qualifications as I can. If I can get a degree before it goes titsup I'll be off to New Zealand.

Like you say though, all the West is in up to their eyeballs, and it could go pop at anytime. What do you mean re: us turning China into Japan?

The printing of money runs two ways. When you have an export driven economy (aka China now, Japan still now but less than in the past) you basically have to get ahead by keeping your currency cheap relative to your trading partners. I was reading an article the other day and the phrase that was in it really rang much more true than saying currency manipulation. They labeled it currency protectionism and just like trade protectionism, it represents a trade barrier that stops free trade.

Anyway... when the U.S. prints a whole crap load of dollars and begins dropping them on the world, it should cause all the other major currencies to go up relative to the dollar and they do somewhat. However China the currency protector, keeps the yuan pegged to the dollar. To do this China has to print up a bunch of yuans to match the number of dollars so that it's currency doesn't appreciate to the dollar. It used to use many of the "excess" dollars to buy up U.S. government bonds and thus, take them out of circulation but the Fed is creating so much liquidity (printing so much) that China can't take that route. Plus there is no return. The U.S bonds are paying nothing. To add insult to injury the Fed is even buying up government debt with the printed dollars to defend the benchmark lending rate of .25%. Basically China can't buy our worthless bonds because we are busy buying them with worthless dollars.

So China's choice is printing a bunch of yuan to stop it from appreciating against the dollar. The U.S. is tossing these record number of dollars out into a deflationary environment with regard to our economy and understand that it is tossing so many out there that it IS creating inflation even in the midst of recession. The amount of printing is really insane.

However China to match this is having to toss yuan out in an economy that is already running white hot and trying to prevent bubbles in real estate, the stock market, you name it.

To see the effect of how this goes bad, you just look at what happened to Japan. They basically had to let their currency rise at some point otherwise the U.S. prints all the bonds they hold into worthlessness. This is especially true today in China who hold more of our bonds than anyone. So instead of seeing who can run their printing press into the fastest and destroy all the reserves, China should blink and let their currency rise relative to the dollar.

When that happened in Japan, it caused massive and insane bubbles that blew up and kicked their economy into the crapper where it has been for almost two decades. Now do this in China and add a demographic time bomb that is further along and a half billion starving peasant class people into the mix and stir in some good fun. A strong currency wants to go shop but at the same time is no longer competitive for exports. You have everyone pulling this wonderful appreciated currency out of banks at the same time their competitiveness collapses. It is a double slam. You end up broke and uncompetitive.

People will say that China might not blink. Then the U.S. will continue to print (as they already are doing) and will lower the value of the bonds that China holds (I'm pretty sure they'll already badly dented in terms of holding value). Additionally the yuan that are being printed up will cause incredible inflationary pressure within the Chinese economy. For now China is trying to contain these buy raising interest rates and raising reserve requirements. However that causes problems too with borrowing. You have to be guaranteed a better return due to the rising interest rates and at the same time, inflation is eating the value of the money so instead of investing, you want to spend it. It's hard to talk yourself into saving $50k to invest when inflation might make it be worth $40k in terms of purchasing power, and at the same time if you invest it and need to borrow to add with your $50k, you are paying 15% interest on it.

As I've said in the boomer threads, inflation is an easy solution for governments. No one really gets hurt as long as you are on the treadmill. The problem becomes when you have to get off the treadmill.

Recall the good old days when I told you several times that America was heading the way of the late Roman Empire. Complete refusal of any of you wingers here to acknowledge that, because your man was in charge, printing the money....

No, since your join date is three months ago However, the comparison to the Roman Empire is apt.

GWB wasn't "in charge" of the Fed any more than any other elected stooge. The Fed operates outside the law. It answers to no one, not Congress and certainly not the President. In fact it's pretty clear our government and our taxpayers are its servants, not the other way 'round. Congress's knee-jerk reaction to the AIG/Goldman/Bear Stearns liquidity crises are clear evidence of that.

As President GWB was handed a golden opportunity to expose this inherently flawed institution and inspire a groundswell of popular support. As I pointed out many times in the past, he blew it in epic fashion, guaranteeing similar crises will arise many decades into the future (if we have that long, and I don't think we do). I don't think W had the mental acuity to understand the Fed, but nor do most members of Congress, and certainly not our present Administration. As hard as it is to believe, Obama and little Timmy Geitner are even more clueless than GWB.

Most Americans don't understand the Fed, even though it's shockingly easy to understand what it does and why it (and a complicit Congress) have been leading us to ruin. Thanks to popular culture they assume that intelligent, heroic Jack Bauer-types exist somewhere in government safeguarding their security. They're wrong. The US is crumbling from within, and its collapse will be as "unexpected" as all the other "unexpected" things happening recently.

The central bank exists for one reason: to aggrandize itself and the few (very few) members who control it. We exist as its prison inmates. Government exists as the wardens.

The situation doesn't have to remain so, in fact it can't, since our present course is treading a predictable road to economic destruction. Congress created the central bank, and Congress can dismantle it. Unfortunately there are exactly two Congressmen who appear to really understand the evil of central banks, and how to right this sinking ship. Fortunately that's twice as many Congressmen as prior to November 2. A few more elections and we'll have a chance.

That is... if we have that long, and I don't think we do.

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Originally Posted by trumptman

Gold does have an intrinsic value. It is a metal and it is relatively rare and precious. Sure you can't eat it but you can't eat coal or oil either. However you could certain barter it for other items of value.

True precious metals: lead, brass, copper. That's all you need to get the rest

"I remain convinced we are witnessing a bubble of epic proportions which will burst catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s. Ignore these indicators at your peril," he said

In a sense, inflation is a crude way of curbing Chinas export surpluses and therefore of resolving a key trade imbalance that lay behind the global credit crisis.

If China continues to stoke inflation and blaming the US Federal Reserve for its own errors help there will no longer be any need for a yuan revaluation against the dollar, and the US Congress can shelve its sanctions law.

On a recent visit to a chemical plant in Suzhou, I was told by the English manager that wage bonuses for staff will average nine months pay this year. This is what it costs to keep skilled workers. His own contract is fixed in sterling, which has crashed against the yuan over the last two years. "It is a sobering experience," he said.

China may have hit the "Lewis turning point", named after the Nobel economist Arthur Lewis from St Lucia. It is the moment for each catch-up economy when the supply of cheap labour from the countryside dries up, leading to a surge in industrial wages. That reserve army of 120m Chinese migrants everybody was so worried about four years ago has already dwindled to 25m.

Chinas problem is that this is happening just as the aging crisis starts to bite. The number of workers will decline in absolute terms within four years. The society will then tip into precipitous demographic decline. Unlike Japan, it will become old before it is has built a cushion of wealth.

If there is a hard-landing in 2011, Chinas reserves of $2.6 trillion or over $3 trillion if counted fully will not help much. Professor Michael Pettis from Beijing University says the money cannot be used internally in the economy.

While this fund does offer China external protection, Mr Pettis notes wryly that the only other times in the last century when one country accumulated reserves equal to 5pc to 6pc of global GDP was US in the 1920s, and Japan in the 1980s. We know how both episodes ended.

The sons of Mao insist that they have studied the Japanese debacle closely and will not repeat the error. And I can sell you an ocean-front property in Chengdu.

Trumpy: these articles are probably right-on, although it's impossible to say because there isn't much transparency in the Chinese economy. Nonetheless, there's a lot of evidence that a massive Chinese bubble is about to explode, reminiscent of the Japanese one in the 80's.

Trumpy: these articles are probably right-on, although it's impossible to say because there isn't much transparency in the Chinese economy. Nonetheless, there's a lot of evidence that a massive Chinese bubble is about to explode, reminiscent of the Japanese one in the 80's.

"The history of republics is they average 200 years of life. And they all fail in the history over fiscal matters. They rot from within before they collapse or are attacked," Coburn told "Fox News Sunday."

I think it's clear the US is rotting from within:

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Originally Posted by john galt

The US is crumbling from within, and its collapse will be as "unexpected" as all the other "unexpected" things happening recently. ...

The situation doesn't have to remain so, in fact it can't, since our present course is treading a predictable road to economic destruction.

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"I think you'll see a 15 to 18 percent unemployment rate. I think you will see an 8 to 9 percent decline in GDP. I think you'll see the middle class just destroyed if we don't do this. And the people that it will harm the most will be the poorest of the poor, because we'll print money to try to debase our currency and get out of it and what you will see is hyperinflation," Coburn said.

Printing money is exactly what QE2 accomplishes.

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Coburn said he can come up with $350 billion off the top of his head in inefficiency and waste that could be eliminated without impacting anyone in a practical sense. He noted $50 billion in programs that are duplicative and $100 billion in Medicare and Medicaid fraud that was not addressed in the health care law.

Let's see: Great Society's Medicare and Medicaid: two government programs plagued by billions in waste and fraud. Let's fix that with... another government program! Oh, but Obamacare fails to address that.

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"We have 267 job training programs across 39 different agencies. Why do we have 267 of them? We have 105 programs to encourage people to go into science and technology, engineering and math.

I wonder how many such programs Singapore has, while their math and science students run circles around us.

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That's 105 sets of bureaucrats. None of them have metrics on it," he said.

Most private businesses have to control and account for every nickel of expense. All publicly traded companies are required to. But our government that sucks up trillions of privately earned capital in tax revenue every year? They simply make it disappear. Then they scream for more.

Three or four years is all he gives us...

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Originally Posted by john galt

That is... if we have that long, and I don't think we do.

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"I don't care if you're rich or poor, liberal or conservative. If we don't fix the problems in front of us, everybody is going to pay a significant price," he said.

I don't care if you're rich or poor, liberal or conservative either, but someone has to dump the ill-conceived programs that big government inflicted upon us. Who might that be?

The reality is that the situation in Europe has literally reached a fever pitch. We have now progressed to the “contagion” point in which the entire system is at risk versus individual countries. To whit, Ireland has only just been bailed out and already Spain, Italy, Portugal, and Belgium.

It has a little bit of fortune telling in there as well. We should all take note of it.

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The only difference is that after the collapse is finished, investors will then set their sites on the US Dollar as the next currency to fall. That’s when inflation will accelerate as the US Dollar collapses, destroying purchasing power while inflation hedges EXPLODE higher.

Some, like the most popular picks (Gold and Silver bullion), will records strong gains. However, others, (the ones that 99.9% of the investment world are currently clueless about), will go absolutely parabolic.

Everything I own is already an inflation hedge, but it might be time to still find a way to double-down. Interesting times we live in and 2011 is going to be even more interesting as entire countries go bankrupt due to bad worldview.

I see now that this entire crisis has been manufactured by the Fed to take down Europe and to some extent China, but it wont work.

Its interesting that its the Christian right wing, cheering on the collapse of entire continents, same as they deny warming, same as they pander to their false God, same as they cheer Creationism and big-oil...

Thats the trouble with wingers, cant live along side other people, always looking for angles to destroy, control, and belittle. Their whole existance revolves around a number on a screen.

The Chinese government is desperately trying to put the brakes on the economy. It is shutting off lending to land developers and has raised bank reserve requirements five times this year. However, its success on the inflation front will likely lead to a slowdown of the economy and high unemployment. Ironically, those were the issues party planners tried to cure when they stimulated the hell out of the economy over the last few years.

China bulls are arguing that the almighty Chinese government will be able to soft-land the economy. Unlikely, I’d say. Forced lending was at the core of Chinese economic growth. Simply put, there is too much debt to go bad. According to Ernst and Young, one-third of the $700 billion in loans taken out by local governments may face repayment problems. The People’s Bank of China estimates that Chinese banks’ exposure to local government loans is 14 trillion yuan ($2.2 trillion), according to the June 17 South China Morning Post.

Once lending is cut off, property prices will stop appreciating (and likely collapse — that is what usually happens in a Ponzi scheme). Also, the overcapacity in the industrial sector and commercial real estate will come to the surface. And suddenly everyone will discover that the venerable emperor has no clothes.

We’re in the throes of Currency War III, and Ben Bernanke has won the first offensive by flooding China with inflation.

If this sounds like a geeky online game, recall how Chinese prices surged after the Federal Reserve unleashed its quantitative easing in 2009 and 2010, one of many moves James Rickards parses in his somber book, “Currency Wars.”

“It was the perfect currency-war weapon and the Fed knew it,” he says, describing how the Fed’s expanding money supply forced China to print more yuan to maintain its peg to the dollar. “China was now importing inflation from the United States through the exchange-rate peg after previously having exported its deflation to the United States.”

Enough was enough, as President Barack Obama has now summed up the U.S. view that the yuan remains undervalued.

Trumpy, I think I'm on the same page as you. Only thing is as you mentioned I feel the bankers are the tail wagging the government dog, while you believe it's government that has let this go out of control.

I'm starting to think though that maybe this is a perfect example of government and banking collusion, the root of the woes of the past ten years and probably even stretching back to the post-cold war days.

The mood for US and Europe right now is not good. The UK is also not that fantastic and it appears that David Cameron is set on Europe-bashing to cover his ass.

Australia is holding together for now, the government having declared this being the "Asian century" and the region Australia will be closely tied to. Hopefully they don't mean devolving to Asian emerging economy standards of living.

I'm going to hold out in a city here on the West coast of Australia for the next few years, I call it not just a little sanctuary but a spindle on which I watch the tapestry either get weaved or unravelled, depending on one's view of things.

What I have so much trouble stomaching anywhere in the world though is the media and perception that "the markets" are going to be the thing that saves us... When they are the cause of the problem.

And as for the modern-era US Federal Reserve, I think that should be just totally disbanded. It's a clusterfuck that will go down in history as such.

As a kid, I've always been left-leaning, so I do recall asking my Dad, "Hey, so if we need money, why can't we print money for everyone and give it to everybody?" ~ Yes, for some of you if you were my Dad you would have spanked me good for such commie thoughts...

But my Dad tried to explain how a nation's currency has to be tied to gold and foreign currency reserves, etc. He's 72 now, and I think he still thinks many countries do that, and he is still somehow under the impression that even "partially-floated" currencies (China, Singapore, etc.) have some really strong rational, fundamental basis to how they operate (ie. manipulate) their currency.

Trumpy, I think I'm on the same page as you. Only thing is as you mentioned I feel the bankers are the tail wagging the government dog, while you believe it's government that has let this go out of control.

Well as you note, we disagree there. I simply don't think any rich person or bank is large enough to inflict the type of problems that are out there on say... Japan, China, United States and good chunks of Europe. The problems are much larger than even the richest rich person or even a cartel of them. Suppose it were the evil Apple company that wanted to bend the world to it's ways. Apple is only as large as one month of spending by the Federal Government here in the United States. The Federal Government here will spend more than 12 Apple Computer companies this year.

The point is, it has the be the governments, nothing else even comes close in size.

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I'm starting to think though that maybe this is a perfect example of government and banking collusion, the root of the woes of the past ten years and probably even stretching back to the post-cold war days.

There are certainly banks that win and lose but that is always the case in crony-capitalism. That is why I say the banks work for the government because the government can easily pick you as a loser and then you are done.

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The mood for US and Europe right now is not good. The UK is also not that fantastic and it appears that David Cameron is set on Europe-bashing to cover his ass.

Australia is holding together for now, the government having declared this being the "Asian century" and the region Australia will be closely tied to. Hopefully they don't mean devolving to Asian emerging economy standards of living.

I'm going to hold out in a city here on the West coast of Australia for the next few years, I call it not just a little sanctuary but a spindle on which I watch the tapestry either get weaved or unravelled, depending on one's view of things.

You may have chosen a good place to go. A lot of these middle ground countries, Australia, Canada, etc have made good choices in part because they recognize that they can't do it all and thus prioritize. To big to fail, debt as a free lunch, etc. hasn't been embraced by them in part out of choice.

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What I have so much trouble stomaching anywhere in the world though is the media and perception that "the markets" are going to be the thing that saves us... When they are the cause of the problem.

And as for the modern-era US Federal Reserve, I think that should be just totally disbanded. It's a clusterfuck that will go down in history as such.

Companies will be what will save us. You can't claim to hate money, work and products and some how get economic prosperity. This sort of self-loathing and self-ignorance is just terrible in real life. People who claim not to care about their weight end up fat. People who claim not to care about money end up broke. You have to care about the external factors that influence how you live and no amount of good intentions or claims denying self can change that.

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Originally Posted by jazzguru

I believe our current economic woes have their origins back in 1913 with the creation of the Federal Reserve and the ratification of the 16th Amendment (Federal Income Tax).

Nixon taking us off the Gold Standard accelerated the downward spiral.

And yet, the movie cannot possibly end there. Can it? There is a long-shot line of thinking that suggests, despite all these considerable and seemingly insurmountable objections, that monetizing the debt is exactly what the ECB will do.

The reason is simple: its because its what they have to do, because there is no other way out of this mess. The notion of leveraging the European Financial Stability Fund has failed; there will be no additional money from the International Monetary Fund without US approval, which wont come without Europe putting up substantial funds of its own, which wont come without approval of all 17 nations, which wont come.

It looks increasingly like there are two choices: letting the Euro zone fall apart, or ECB standing behind the sovereign debts [cnbc explains] . The calculus among a very few analysts is that they will step in and the Germans will reverse themselves when they face the abyss.

One of the main German concerns, for example, is about the possible inflation that could result from rolling the printing presses. Fears of the Weimar Republic animate much of German economic thinking.

But how much would the Germans really care about inflation in a Euro zone that no longer existed? And if the choice were between inflation and devastation to its export economy from a much-appreciated currency, Germany might finally back monetization. Would the ECB really not take the one action that it could to preserve the euro zone, which is its job is to protect?

Nobel economist James Buchanan nailed down this Keynesian fallacy. In this magic world, debt and deficits were no problem: Debtors and creditors were mutually cancelling; hence, in the macroeconomic context, the society could never be in debt in any way comparable to that situation in which a person, a family, a firm, a local government, or even a central government that had borrowed from foreigners might find itself.

The product of this idea, as Buchanan wrote, was a glorious free ride. If true, The economic analogue to the perpetual motion machine would have been found, said Buchanan in his 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes. The benefits of public spending are always available without cost merely by resort to borrowing, and without regard to the phase of the economic cycle.

Offered a free lunch, politicians everywhere including Canada rushed to the table and ran up government debt. Debt levels soared across Europe, well after Keynesian theory had been overthrown. Throughout the 1980s and into the 1990s, Italy ran annual deficits that topped 10% of GDP. By the time Berlosconi got to power in 2001, Italys *fiscal goose had been cooked by Keynesian belief in the eternal merit of spending more and more money without ever needing to repay any of it.

So it is clearly wrong to imply the arrival of Mario Monti, a classic eurocrat as head of Italys new and unelected government marks the end of the anomaly of the Berlusconi era, as suggested in a New York Times op-ed Friday. Based on the trends in the numbers, Berlusconis era is marked by more discipline that his predecessors. He clearly didnt do enough, but the mess was not of his making. Not that it matters.

Canada would be in the same position as Italy today had the currency markets not spooked the Liberal government of Jean Chrétien in the 1990s, forcing a fiscal retrenchment. Spending was cut and Canadas fiscal structure was repaired. Italy and Europe are now facing the same fiscal reality that Canada tackled more than a decade ago.

But theres a difference in Europe. When Canada ran into a fiscal wall in the 1990s, it cut spending. It did not turn to the Bank of Canada to bail it out with a massive blast of printed money. Had politicians tried to get the Bank of Canada to buy up Ottawas debt, there would have been massive opposition from Canadas financial and economic establishment. The prospect of using the printing of money and inflation to bail out the government of Canada would have been unthinkable, not just to the economic community but to Canadian voters.

Worldwide inflation to cover worldwide debt, that can't be the fault of the bankers.

Apple would have done just fine. Both Steve Jobs and Tim Cook, regardless of their views about government and individual rights ran/run the company in a profoundly conservative manner. They do only what they know and do it well. They operate without debt or leverage and deal mostly in cash. It might be possible to argue they would have done even better because one of the things that mucks up markets sorting themselves out is government intervention and large debts that fiat currencies allow.

I have a joke I tease about with regard to teaching. The students and their parents who don't want to achieve always have an excuse about why they don't have to work and learn. A few years ago it used to be "You can't expect us to learn. It isn't necessary. We are still rich and have a large house with granite countertops." Now of course they show up and proclaim, "You can't expect us to learn. We can't because we are so disadvantaged due to being broke and homeless." It's the same kids and same parents. The finger always points somewhere else.

Here's another great link talking about a book that is being added to my reading list. I'm so glad my holiday break will be filled with a couple books.

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Most people with a special interest in the events of the credit crunch and the Great Recession that followed it have a private benchmark for the excesses that led up to the crash. These benchmarks are a rule of thumb, a rough measure of how far out of control things got; they are phenomena that at the time seemed normal but that in retrospect were a brightly flashing warning light. I came across mine in Iceland, talking to a waitress in a café in the summer of 2009, about eight months after the króna collapsed and the whole country effectively went bankrupt under the debts incurred by its overextended banks. I asked her what had changed about her life since the crash.

Well, she said, if Im going to spend some time with friends at the weekend we go camping in the countryside.

How is that different from what you did before? I asked.

We used to take a plane to Milan and go shopping on the via Linate.

Since that conversation, Ive privately graded transparently absurd pre-crunch phenomena on a scale from 0 to 10, with 0 being complete financial prudence, and 10 being a Reykjavik waitress thinking it normal to be able to afford weekend shopping trips to Milan.

What an intro...

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Unfortunately, the new plan got the thumbs-down: markets nudged the yield on Italian debt dangerously close to 6.5 percent, a number generally regarded as unsustainable. So the October 27 deal, generally seen as an attempt to buy time while more comprehensive plans are made, may not even do that. I dont think Lewis would be surprised at the way this is playing out, and the fact that the full extent of the debt problems are still not being faced. Some of his targets in Boomerang date from the boom years, but many are firmly located in the present. The angriest of these essays is about Greece, which he sees as a country in the grip of total moral collapse.

It's interesting to think that for most governments, having to pay 6.5% on a bond technically puts it in default because the debt ratios are so high. They'll never get ahead at so low an interest rate. This should be truly frightening to most folks if given some thought. It means even now they really are in default and couldn't sustain what they have borrowed now if not for their central banks artificially keeping interest rates low.

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That doesnt mean that Boomerang leaves the reader feeling optimistic; an honest book about the current economic condition of the Western world couldnt do that. One of the lasting feelings I took away from my own experiences of financial disaster tourism, as Lewis calls it, was one of sadness. I went to the same countries and met different people who told very similar stories. It is easy to diagnose a basic failure of responsibility as one of the causes of the debt crisis; and theres no denying that such failures took place on the widest imaginable scale, from individuals up to governments.

Debt is slavery. The entire Western world is enslaving itself in the name of entertainment and fun. This can't be an enlightened state. This can't be "the Answer". Declaring that if we just borrow more and spend more that we will somehow arrive at utopia where there is no need or problems due to the multiplier effect of claimed financial growth.

I believe our current economic woes have their origins back in 1913 with the creation of the Federal Reserve and the ratification of the 16th Amendment (Federal Income Tax).

Nixon taking us off the Gold Standard accelerated the downward spiral.

The gold standard is meaningless. I mean really? The value our currency is based on the ability to dig and refine gold out of the ground? It's based on how much people want to pay for it? Forget the fact that modern technology actually found a practical use for gold other than it's shinny and makes good jewelry. Why not move to the diamond, platinum or butter standard?

The gold standard is meaningless. I mean really? The value our currency is based on the ability to dig and refine gold out of the ground? It's based on how much people want to pay for it? Forget the fact that modern technology actually found a practical use for gold other than it's shinny and makes good jewelry. Why not move to the diamond, platinum or butter standard?

Diamonds are largely worthless and butter is not exactly a limited commodity. I have no idea whether platinum could be used, but you are arguing against a past system that worked fairly well and restrained government spending, while the current system clearly doesn't do either.

Diamonds are largely worthless and butter is not exactly a limited commodity. I have no idea whether platinum could be used, but you are arguing against a past system that worked fairly well and restrained government spending, while the current system clearly doesn't do either.

Gold only has value because people value it. People value the dollar too. What's the difference?

For those who know and have read the Boomer thread, you know I consider this something we probably cannot save ourselves from because I consider it to be the Baby Boomer Blind Spot. I'm of a firm belief the Boomers in shucking all the other rules and gutting all the other wealth available are under this one last and strongest delusion, that the dollar cannot be broken as a currency.

In my view, all the tone that underlines all the fretting about sovereign debt crisis and currency wars belies this fact. The rest of the world really cannot believe the United States would do this to it's own currency and harm itself to this degree. As the article notes, it amounts to economic suicide. Fiat currencies aren't backed by anything but rule of law and a belief that people will follow through on actions to maintain the wealth represented in the currency. QE represents a profound breaking of that promise to a degree where the loss of trust is permanent and largely irreversible.

Printing money represents nothing more than default on debt and since we are the world's largest debtor, being unwilling to honor promises here has a profound outcome.

I'm firmly of the opinion that inflation will return and that the generation after them will somehow decouple entitlements from it. This will solve the entitlement problem in part by cutting benefits without really cutting them. You let inflation run 6-7% while actually raising benefits 1-2% and the government will just lie about the numbers. (Hell they already do)

Look what he wrote next and think about it especially if you are a boomer....

I believe we will end up endorsing a universal health care program but I believe the reasoning on this will be a bit perverse. It will be because as the boomers begin desiring all their life extending and quality of life procedures, we will be able to ration care and deny them these items. You will see hip, knee replacements and other procedures limited by the government due to preexisting conditions much like what is happening in Britain now.

I think America lucky in that our illegal immigrants don't happen to want to kill us unlike Europe. We don't have to worry about Mexicans being radicalized religiously. I think we will soon see an amnesty program in part because of the "retirement crisis.

It's the recovery that never happened because the growth wasn't real. This is why there is no hiring.

There aren't any other ideas left without just fessing up and taking the lower standard of living, especially for those Baby Boomers who have literally wasted away a lifetime of earnings.

Who gets elected by declaring you need a lower standard of living and must desire to save, invest and work hard again? Again there is a small chance here that perhaps we can head in the right direction but control of the House alone won't cut it. Hell even half the Republican party still is far too liberal and desires to spend and control far too much. The middle of the political spectrum right now basically amounts to, let us play casino to make fake returns instead of real returns and we won't complain when you take a larger piece of the pie with regard to the fake money and returns.

It's a bit insane.

How did we get into such debt? Simple the screwed up wars we were in Iraq, and Afghanistan.Still there with no real relief in sight as getting the hell out asap.We need a leader who can lead and not bullshit us all the time with lies and deceit.No one fits this picture so far I see.Regulate control of these damned banks and Wall Street now.

Gold only has value because people value it. People value the dollar too. What's the difference?

The difference is gold cannot be arbitrarily created out of the air. Dollars can and are in fact created this way.

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Originally Posted by FloorJack

It's an artificial means of grounding it if so. It retards economic development.

It is a commonly agreed upon store of value be it possessions or work. If people want to agree on a different store of value, that is completely fine. It can only retard economic development if there becomes no agreed upon way to store efforts and items of value. The items have intrinsic value and even most labor can survive in a barter environment. The problem becomes when a currency can be manipulated and thus the value can be destroyed by irresponsible governments.

BTW, FJ have you read anything about nickels actually costing almost seven cents with of materials? Copper, nickle, etc we use other metals as well. We don't think of that too much because the paper dollars no longer have anything really backing them but all our coins were supposed to have their metals equate to their value as well.

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Originally Posted by marvfox

How did we get into such debt? Simple the screwed up wars we were in Iraq, and Afghanistan.Still there with no real relief in sight as getting the hell out asap.We need a leader who can lead and not bullshit us all the time with lies and deceit.No one fits this picture so far I see.Regulate control of these damned banks and Wall Street now.

It's much larger than that. How do you explain this happening across the entire western world when they didn't and aren't going to war at all? Did Greece, Italy, Ireland, etc all go to war in Iraq as well?

The gold standard is meaningless. I mean really? The value our currency is based on the ability to dig and refine gold out of the ground? It's based on how much people want to pay for it? Forget the fact that modern technology actually found a practical use for gold other than it's shinny and makes good jewelry. Why not move to the diamond, platinum or butter standard?